The costs are beginning to add up for British Petroleum (BP:NYSE.ADR) as the crude oil spill reaches a crisis point in the Gulf region with no end in sight. In addition to oil spill cleanup costs, pending litigation from the states involved and the federal government is certain to affect BP for decades to come.
The impact will also hit the rest of the oil exploration companies because the White House has decided to halt its plans for offshore drilling of crude oil off the mid-Atlantic, Florida and Alaskan coasts. The Obama administration has decided to review the risks involved with offshore drilling and the potential costs if additional accidents occur from these efforts.
Adding to the fear of further offshore drilling are comments being expressed by environmentalists and offshore drilling opponents. Negative messaging has a distinct impact on the government’s approach to energy expansion, as well as popular opinion.
“It is of grave concern,” Davis Kennedy of the National Oceanic and Atmospheric Administration told the Associated Press over the weekend. “I am frightened. This is a very, very big thing. And the efforts that are going to be required to do anything about it, especially if it continues on, are just mind-boggling.”
The leak is adding 200,000 gallons of crude oil per day to the waters in the Gulf; the original estimate was 40,000 gallons per day. At the current rate, if the leak is not fixed, it will surpass the 11 million gallons leaked from the Exxon Valdez, by the third week of June.
“This has a danger of becoming an utter ecological disaster,” Ken Madlock, a fellow in energy and resource economics at Rice University’s Baker Institute for Public Policy in Houston told Bloomberg News. “This is going to result in remediation costs and is going to be burdensome, to say the least.”
It is those remediation costs that will impact BP the most. The oil spill cleanup cost estimates already total $14 billion, but the pending state and federal government lawsuits could total five times that cost.
The first lawsuit has already been filed in federal court by shrimpers and fisherman on April 28. The suit against BP and Transocean Ltd. (RIG:NYSE), the owner of the sunken rig, says Louisiana supplies 25% of the seafood for the continental United States.
And the ancillary businesses will be affected, as well. There are billions of dollars in revenue generated from outdoor recreation, sport fishing, and beach tourism, which is certain to take a hit as the crude oil washes ashore.
“The cost for BP will be heavily influenced by how much oil reaches the Gulf Coast and where this occurs,” said Sanford Bernstein & Co., analyst, Neil McMahon, in a note obtained by Bloomberg News.
BP is already preparing itself for those additional ancillary costs. In a statement to the press and shareholders, the crude oil giant simply stated: “It is too early to quantify other potential costs and liabilities with the incident.”
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I am from Alberta, Canada- trust our government agencies are tightening safety.